Common criticisms of ILPs: charges, commission, lapse risk, complaints data and the regulatory response

The debate around investment-linked policies (ILPs) covers the criticisms that the public, the media and the industry itself have raised about ILP charges, insurance costs, sales incentives and complexity, together with the regulatory response. ILPs are also the fastest-growing product line: in 2025 investment-linked products made up 44% of weighted new life business premiums, and ILP weighted new business premiums rose 27.8% year on year (LIA, 11 Feb 2026). This page does not try to decide whether ILPs are "good" or "bad". It maps each common criticism to a specific mechanism and to verifiable facts, then separates the structural issues from those that can be avoided.

A map of the debate: what each of the five criticisms targets

Much of the discussion lumps "high charges", "lapse risk" and "mis-selling" together, but they target different mechanisms and are verified in different ways.

Media and blog views are marked "secondary"; figures follow official sources.

Charges and early surrender losses

This is the oldest criticism. A widely shared 2015 blog post argued that distribution costs are high and that early termination leads to losses (DollarsAndSense, 13 Aug 2015; secondary opinion, not used as charge data).

Mechanically, a front-end charging structure deducts a large share of premiums in the early years; for policies issued from 8 October 2021 these deductions must be disclosed uniformly as a "premium charge" (MAS Notice 307, paragraphs 27A and 27B). A back-end structure invests the full premium in units but levies a surrender charge if the policy is surrendered in the early years. The LIA guide notes that the two structures have a broadly similar overall effect: switching charging method does not make the early-year cost disappear, it only changes when that cost appears.

To judge whether this criticism applies to you, check three things: how many years the premium charge or surrender charge lasts; whether you can be sure of keeping the money in for that whole period; and, where an illustration is provided, in which year the 0% column climbs back to the total premiums paid. The charge layers are set out in detail in ILP charges.

Insurance charges that rise with age, and lapse risk

The second criticism is more structural. MoneySense notes that insurance charges rise with age, that units may not be enough to pay them, and that investors may lose the entire value of their investment (28 Sep 2026). The reason is that premiums on a regular-premium ILP usually stay level while insurance charges are paid by selling units; when a high sum assured coincides with poorly performing sub-funds, the only options are to top up premiums or reduce the sum assured, or the policy lapses (LIA guide, Mar 2026).

LIA's illustration rules put this risk on paper: illustrations must include a 0% column and state that the policy value may fall to zero, at which point the policy terminates. Lapse is not a rare edge case but an outcome the contract explicitly warns about.

This criticism can be mitigated but not removed: the higher the sum assured, the older the life assured and the more volatile the sub-funds, the faster units are eroded. Readers who already hold a policy can use the framework for comparing a reduced sum assured with additional premiums in Already holding an ILP.

Sales incentives and the "capital-protected" pitch

On commission, this site discusses only the public rules. The MAS rules on spreading and capping of commission (SCC) apply to regular-premium life policies (including regular-premium ILPs) bought from 1 April 2017; single-premium policies are excluded (MAS, 19 Apr 2017). The detailed rules are covered in ILP regulation. These rules change how remuneration is paid; they do not ensure that every recommendation suits the client.

Another criticism concerns sales language. In June 2026 trade media reported that MAS and LIA had cautioned the industry against describing ILPs as "capital guaranteed" (Asia Insurance Review, 2 Jun 2026, secondary). The background is that some ILPs calculate the death benefit as the higher of 101% of premiums paid and the account value (the so-called 101 ILP; refer to the Product Summary). This is only the payout formula on death; it does not mean you get your capital back if you surrender while alive, and ILPs usually have no guaranteed cash value (MoneySense, LIA).

Several safeguards already apply at the point of sale: a Customer Knowledge Assessment (CKA) is required before purchase, and those who do not pass cannot buy on an execution-only basis; the current Notice FAA-N16 (from 29 December 2025) requires selected clients to be accompanied by a trusted individual (which can be waived in writing) and to receive a pre-transaction call.

What the complaints data shows, and what it does not

The most widely quoted figures come from MAS's written parliamentary reply of 25 September 2025:

Media coverage at the time quoted FIDReC's chief executive as saying that many complaints involved market-conduct issues such as misrepresentation and inadequate disclosure (The Straits Times, 2 Sep 2025, secondary; the report's first-half case count differs slightly from MAS's, and this site follows MAS).

Three points matter when reading these figures. The denominator matters: 211 cases is about 0.1% of ILPs sold that year. FIDReC counts only cases that were first raised with the institution, left unresolved and then filed, so the count is not the number of cases found to involve mis-selling. And the rise in 2024 tracked growth in sales, so the case count alone cannot tell you whether problems increased or the base simply grew. The complaints data neither proves widespread mis-selling nor proves there is no problem.

The regulatory response

Regulators have responded to these criticisms in stages: from 2012, a CKA has been required before an ILP is recommended; from 2014, investment-focused single-premium ILPs no longer come with a policy illustration; from 2017, commission on regular-premium life policies must be spread; from 8 October 2021, front-end deductions on new policies are disclosed uniformly as a "premium charge"; and from 29 December 2025, selected clients must be accompanied by a trusted individual. On 15 May 2026 MAS decided to classify all ILPs as complex products, on the grounds that they structurally combine insurance and investment features; the decision awaits legislation and is not yet in force. "Complex product" is a classification for disclosure and sales processes, not a verdict on quality. The dates and wording of each rule are covered in ILP regulation.

Which criticisms are structural and which can be avoided

Structural (present in any ILP):

1. There is usually no guaranteed cash value, and the policyholder bears the investment risk (MoneySense).
2. Insurance charges rise with age and are paid by selling units; the higher the sum assured, the faster the erosion.
3. The Policy Owners' Protection (PPF) Scheme does not cover benefits directly linked to sub-fund net asset values (SDIC).
4. Three layers of charges — policy, cover and fund — stack up, adding a layer of policy charges compared with buying unit trusts directly.

Avoidable or reducible through choice of structure and term:

1. Early surrender losses: use only money you are sure can stay in for the full surrender-charge period; single and regular premiums, and front-end and back-end structures, incur charges at different times, which can be compared in the Product Summary.
2. Lapse risk: match the sum assured to your budget and leave room for top-ups; if you only need protection, consider term insurance plus separate investing, compared in ILP compared.
3. Misleading sales language: insist that any claim of a "guarantee" is backed by the written policy terms; the non-zero rates in a policy illustration are illustrative caps, neither floors nor expected returns.
4. Mismatched time horizons: for equity sub-funds, LIA suggests a minimum holding period of ten years or more (LIA guide, Mar 2026).

How readers can check for themselves, and who should not buy

If you are concerned that a policy was mis-sold, start with five questions: what goals and time horizon were recorded in the financial needs analysis when you bought it; what was the CKA outcome; does the charge table in the Product Summary match your understanding at the time; was the death-benefit formula described as "capital protection"; and did you receive the Product Highlights Sheet and annual statements? If the gaps are large, you can first complain in writing to the insurer, and then decide within six months of its final reply whether to file with FIDReC.

Taking these criticisms together, three situations are generally a poor fit for an ILP: money you will need within a few years; people who cannot accept the account value falling sharply or even to zero; and people who need pure protection with no investment component. Specific scenarios are covered in Who an ILP suits, and who it does not. If you would like this interpreted for your own circumstances, you can register your needs through the contact options on this site.